Dr. Earl R. Smith II

Dr. Earl R. Smith II
DrSmith@Dr-Smith.com
www.Dr-Smith.com

In board of director meetings across the United States in the 1980’s and 1990’s, directors debated the extent of corporate internal regulations needed to satisfy intense and unaccustomed scrutiny corporate boards and corporate management was receiving from the news media, the government and a new source, internet web sites. Many boards elected to continue to conduct business as usual and set in place the minimum requirements to satisfy regulators. This lack of effective self-regulation on the part of corporate boards led to the Congress to pass the Sarbanes-Oxley Act of 2002, imposing additional constraining regulations on all publicly owned corporations.

Of course, not every company is publicly owned and not every company chooses to ignore the warning signs of coming regulations. Many corporate boards took proactive steps to prepare for the coming regulations. Corporate governance boards learned lessons regarding their responsibility to the stockholder and the public in general. These were hard-earned lessons brought the downfall of many leaders with an autocratic leadership style.

Stockholders and special interest groups have adopted tactics similar to the anti-war protesters of the early 1970’s. Some companies respond to these tactics by going into compound or bunker mode. Other companies respond by addressing the issue with the special interest groups and embracing the changes that were to come. Good corporate governance will embrace change. Good boards of directors will find ways to turn liabilities and expenses into stores of value for the company’s owners, the stockholder. Corporate boards that choose a governance structure that encourages participation by directors with varying experiences and views will strike at opportunities to set themselves apart as leaders and celebrate successful compliance with regulations, transparency and satisfying stockholders and special interest groups. When addressing an issue is inevitable, it inevitably becomes in your best interest to address it up front. Celebrate it, embrace it, and learn to like it if you can.

Corporate governance became more difficult for boards under Sarbanes-Oxley. Expenses related to compliance issues went up in most cases. However, boards had the option of complaining about the added expense and responsibilities or promoting the company’s response to the regulation as transparency. Companies responding by promoting their efforts and posting their corporate ethics and compliance management policies to the investment community saw stock appreciation and a corresponding increase in shareholder value. By embracing the inevitable in a positive manner, directors were able to build confidence in their corporate finances, their governance and their leadership style.

Many companies did not fall under the Sarbanes-Oxley Act, but elected to adopt many of the regulations of Sarbanes-Oxley as corporate governance policy. CEO’s saw this wave created by the new regulation as an opportunity to strengthen their board. They established audit committees with strong authority and skilled members. Succession committees were established and charged with adding the needed talent to address the issues of planning for the company’s future. Boards appointed ethics officers charged with investigating any charges or appearance of directors failing to live up to the new standards of corporate ethics or compliance.

This new leadership style and spirit sweep across corporate America and into to college classrooms and MBA programs. New advisory companies specializing in audit and compliance management were created to assist boards and corporate management teams deal with the new level of regulation and scrutiny, and more work needs to be done. Regulations are going to tighten, wise boards will embrace the changes that are inevitable, and leadership will guide good governance to make the changes work to enhance shareholder confidence and value.

© Dr. Earl R. Smith II

Related Articles:

• Corporate Boards in a Green World
• Visionary Boards of Directors
• Leadership Development – Good Board Governance
• Board Ethical Standards
• Good Corporate Governance

Dr. Smith is a proven senior executive, successful entrepreneur, published author and public speaker. He serves on boards of directors and advisory boards or as a strategic adviser to CEOs. Dr. Smith specializes in turnaround management, strategic planning, leadership development and executive coaching. He also works as an executive and/or life coach in the areas of personal growth and spirituality. He is the author of Amazing Pace: Turbo-charged Business Development – a book that shows how Advisory Boards can dramatically increase revenue. Dr. Smith is also the author of Dream Walk: Parables for the Living – a book of Raven Tales and exploration.

This entry was posted on Wednesday, October 15th, 2008 at 9:47 AM and is filed under Governance. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.